SBI Mutual Fund has announced the launch of SBI Long Duration Fund on December 12, 2022.
This is an open ended debt plan that seeks to generate regular income over the long term.
Investing primarily in debt and money market instruments, Macaulay maintains a portfolio duration of more than seven years, meaning relatively high interest rates and relatively low credit risk.
The main objective of this long-term fund is to generate good returns commensurate with moderate levels of risk.
Incidentally, many mutual fund houses have launched new fund offers (NFOs) in long-term funds pegged at Reserve Bank of India (RBI) benchmark rates.
The RBI has raised the benchmark rate by 190 basis points (bps) in the last three monetary policy committee meetings. The first hike was to 40 basis points in May, which was followed by another hike of 50 bps in June. The RBI again raised rates by 50 basis points in August and then again by 50 basis points in September. Taking into account the latest increase of 35 basis points, the total repo rates will come to 225 basis points.
DP Singh, Deputy Managing Director and Chief Business Officer, SBI Mutual Fund said, “The policy rate cycle is nearing a peak and inflation is expected to moderate. Forward-looking assumptions on positive real returns create a good case for locking in sovereign yields at current levels. Our offering, SBI Long Term Fund, invests primarily in government securities following a strategy of long duration and portfolio reduction of money market instruments, with a 7 year Macaulay tenure for reset.
According to Singh, investors can benefit from investing in a high-quality government portfolio at a current level where the duration of the fund is in line with their investment goals.
“Compared to traditional investment avenues of similar maturity, this fund helps reduce reinvestment risk while offering tax-efficient returns due to indexation benefits,” added Singh.
The minimum application amount required is Rs. 5,000 and at Re. 1 later. The benchmark of the scheme is CRISIL Long Duration Fund AIII Index.